Kenneth Petersen, Financial Planning: IRA distribution questions

Q: My dad died early this year and among his assets was an IRA that has about $60,000 in it. He was over 71 years old and was taking annual required minimum distributions. He had named my sister and I as 50/50 beneficiaries. My sister wants her portion in cash. I asked her to give her 50 percent to me. My adviser opened a decedent IRA account for my Dad's IRA money to be transferred into. Once that happens I will write a check to my sister whose portion I took. My guess is I have no tax until I take my annual minimum required distribution. My sister who received the check from me should pay tax on that as if it was the IRA distribution. Am I correct? Is there any other tax liability?

A: Chances are the custodian of your dad's IRA will not allow your sister's half of the IRA to be distributed to a decedent's IRA of which you are the beneficiary. If your dad's IRA named each of you as 50 percent beneficiaries, then the custodian will distribute 50 percent to you and 50 percent to your sister. You can opt to have your 50 percent rolled into an inherited IRA with a custodian of your choice and your sister can opt to collect her 50 percent in cash or in kind. She will have to pay tax on the taxable amount of her distribution, which may be the entire amount, depending on how much cost basis your dad had in his IRA. His tax preparer should be able to tell you how much if any cost basis there was. Once you open your inherited IRA, you are required to begin taking annual minimum distributions beginning in the year after your dad died (2015). The amount of each distribution will be determined by dividing the IRA account balance at the end of 2014 by the appropriate life expectancy found in the single life expectancy table provided in Table I in the appendix to IRS Publication 590.

Q: Since my dad died earlier this year, does there need to be a required minimum annual distribution from his IRA for 2014 before we divide it up?

A: Yes, since your dad died after his required beginning date and was already taking annual required minimum distributions, you and your sister, as the IRA beneficiaries, are responsible for figuring and distributing your dad's required minimum distribution in the year of death. Your dad's distribution for the year of death is generally based on Table III (Uniform Lifetime) in Appendix C of IRS Publication 590.

Q: I am 71 years old and still working full time. Can I contribute to an IRA account, and must I take minimum distributions every year?

A: You must take required minimum distributions from your IRA accounts by April 1 of the year following the year in which you turn 70?. This rule applies to everyone with an IRA account, whether they are working or not. The IRS does not allow you to contribute to a regular or Roth IRA account after you reach age 70?, but you can still contribute to a retirement plan at work and if you are self-employed you can contribute to a SEP-IRA.